Crisis-bred austerity dulling EU’s infrastructure edge

As the European bloc stringently tightens its belt, the transport sector is being starved of much-needed upkeep and development funds as emerging market-economies pour money into their systems, threating to supercede the continent’s once-unparalleled infrastructure

By Anthony Deutsch / Reuters, BERLIN

Pedro Rodrigues de Almeida, director of infrastructure studies at the World Economic Forum, concurred that even after the European economy recovers — which economists expect could happen as early as the second half of this year — essential spending will lag requirements for years to come.

“We will not recover the levels of construction expenditure that we had in 2007 to 2008, or just before the crisis, until around 2016. This is something that is going to take several years,” he said.

A decades-long trend of falling global public expenditure on infrastructure, from about 9.5 percent of GDP in 1990 to 7 percent in 2005, has been driven by rising costs for pensions and healthcare, the Organisation for Economic Co-operation and Development said.

Until the global financial crisis hit, the private sector had increasingly filled that gap.

Now, while there are plenty of investors such as pension funds or insurance companies who have money available, they are restricted in how that money can be invested to avoid too much risk and meet targets, meaning that only a small percentage of their total funds may be allocated for infrastructure projects that often require billions over many years, if not decades.

The same applies for banks, which face tougher regulations over lending money.

The number of infrastructure projects to be financed fell 8 percent last year, the first decline in a decade, the organization said. Lending to European projects, including total debt and equity, slowed by nearly 39 percent to slightly more than US$49 billion.

“The cost of Europe’s infrastructure needs are so great they go beyond what is imaginable,” an infrastructure investor who asked not to be named told reporters. “This will hurt Europe in the long run. It is inevitable.”

In Germany, which makes up 15 percent of total European infrastructure spending, projects worth 41.5 billion euros will be started, continued or finished between 2011 and 2015, down from an initially budgeted 57 billion euros.

A spokesperson for the German Ministry of Transport told reporters that the situation was one of “structural underinvestment.”

“There are so many projects waiting to be carried out, but there’s no money there. We have succeeded in getting some more funding, but more is needed. We need it because this investment is important for jobs, the economy and prosperity of Germany,” the spokesperson said.

A high-profile plan that may be dropped is France’s 4 billion euro Seine-Nord Eruope Canal, originally cited as one of 30 priority infrastructure projects backed by Brussels, which Paris has said it can now only afford if 30 percent is paid out of European funds.

The canal is a 106km, high-capacity waterway that would link the Seine River to Belgium, Germany and the Netherlands, relieving Europe’s most congested transport corridor with more than 130 million tonnes of traffic per year.

Construction was supposed to start next year and expected to create 4,500 jobs, with about 25,000 new permanent jobs created between 2025 and 2030. However, its future is highly uncertain as the French government reviews 245 billion euros of costly projects.